RBA comments give dollar a boost
The currency was trading at US103.13¢, up from US102.35¢ on Thursday.
The OxForex chief currency strategist, Jim Vrondas, said the dollar moved higher during Mr Stevens' six-monthly appearance before the House of Representatives standing committee on economics.
"Those comments were somewhat upbeat about the economy so we saw a pretty immediate reaction," Mr Vrondas said.
He said Mr Stevens's testimony had reduced expectations that the RBA would cut the cash rate further in the next few months.
"The comments about having a good deal of interest rate stimulus already in the pipeline, that's the main bit that gave the market a bit of positive sentiment towards the currency," Mr Vrondas said.
The RBA cut the cash rate 1.75 percentage points between November 2011 and last December.
Mr Vrondas said the currency was unlikely to rise above US103.50¢ to US104¢ and could ease by Saturday morning.
Meanwhile, three-year bond futures prices were weaker following the positive comments.
The March 10-year bond futures contract was trading at 96.485 (implying a yield of 3.515 per cent), unchanged from Thursday.
The three-year contract was at 97.100 (2.900 per cent), down from 97.130 (2.870 per cent). The RBC Capital Markets fixed income strategist, Michael Turner, said three-year bond futures sold as a result of Mr Stevens's twice yearly appearance before the economics committee.
"We've had a bit of a rally over the past few sessions, so it was enough to see futures drift off," Mr Turner said.
"[Mr Stevens] was pretty keen to highlight how much they've done already, so markets took that as a sign that they wouldn't mind taking a breather should the data permit."
Mr Turner said the key local driver for Australian bond markets next week would be the release of capital spending data for the December quarter on Thursday.
Frequently Asked Questions about this Article…
The Australian dollar rallied because Glenn Stevens' comments were seen as somewhat upbeat about the economy and suggested less likelihood of further cash rate cuts. Market strategists said that tone reduced expectations of near-term rate cuts and gave the currency a positive boost.
The currency rose to US103.13¢ from US102.35¢ the previous day, reflecting an immediate market reaction to the RBA governor's testimony.
Yes. Analysts said Stevens' testimony reduced expectations that the RBA would cut the cash rate further in the next few months, partly because he highlighted the amount of interest rate stimulus already in place.
According to the OxForex strategist quoted in the article, the currency was unlikely to rise above roughly US103.50¢ to US104¢ and could ease by the following morning, so any further sharp gains were seen as unlikely in the short term.
Three-year bond futures weakened (sold off) after the positive RBA comments. The March 10‑year bond futures contract was unchanged at 96.485 (implying a 3.515% yield), while the three‑year contract fell to 97.100 (2.900%) from 97.130 (2.870%).
RBC Capital Markets' strategist Michael Turner said futures sold after Stevens' appearance because markets had rallied over recent sessions and took the governor's emphasis on past policy moves as a sign the RBA might 'take a breather' if data permit.
The key local driver identified in the article is the release of capital spending data for the December quarter, due on Thursday, which market participants expect could move Australian bond markets.
The article notes the RBA cut the cash rate by 1.75 percentage points between November 2011 and last December. Stevens' emphasis that much stimulus is already 'in the pipeline' made markets less inclined to expect immediate further cuts, helping lift the dollar and prompting some profit-taking in short‑term bond futures.
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